EU procurement reforms - shearing away poor suppliers

Written by Colin Marrs on 7 April 2014 in Features
Features

Procurement rules have long been denounced as tangled by local government. Joshua Chambers reports on new reforms seeking to allow officers greater freedom.

Imagine having your hair cut, and later discovering that the hairdresser has accidentally shaved a large bald patch onto your head.

You’d be unlikely to go back – but public sector bodies who find they’ve bought a poor service often do return for more.

The problem is that they cannot bear in mind past performance when tendering for new suppliers, so the shaky-fingered Sweeney Todds are able to win time and again.

This situation is about to change, though. Reforms to EU procurement law mean that past performance can now legally be borne in mind when awarding government contracts, while a host of other changes will help streamline procurement processes and allow government to favour mutuals and small businesses.

It’s taken years of negotiations, but the UK has managed to persuade its European counterparts to reform the EU procurement directives. The changes improve buyers’ freedom of manoeuvre; now we’ll have to see how the public sector uses this flexibility.

The precise change affecting commissioning is the ability to exclude a supplier from a procurement procedure on the grounds of grave professional misconduct or persistent poor performance.

Rachel Bickler, a managing associate of law firm Nabarro, explains that the European legislation allows buyers to disbar suppliers whose poor performance led to a public contract’s early termination, damages or comparable sanctions. “It’s not just any poor performance; it has to have resulted in some clear penalty,” she says.

To help build evidence for the use of this new power, the UK government has “instituted a supplier performance management regime where we are ranking suppliers based on their performance so we are able to identify persistent issues,” says Sally Collier, government’s deputy chief procurement officer. Certainly “we have to have evidence that something has happened,” she adds – such as ongoing litigation.

Some fear that, in practice, government will be reluctant to exclude bigger suppliers because of the risk of legal appeals. “In three years’ time, there will not be a single major IT supplier who’s been excluded from bidding for government contracts,” predicts Peter Smith, a former president of the Chartered Institute of Purchasing and Supply who now runs a procurement consultancy.

“We may find that there’s some dodgy little stationery supplier or cleaning company, but the chance of the household names being excluded is virtually nil. At the first sign of it happening, the supplier will have to challenge it.” This risk of litigation will make civil service procurement staff very cautious, he believes.

Collier rebuts the claim, saying: “We want public procurers to take advantage of all the measures that we’ve negotiated.” That said, “the area is complex, so we’ll be issuing guidance and training to help people exploit these measures.”

The second big change allows government to reserve contracts for new mutuals for a period before fully exposing them to market competition. Previously, when government has spun-off staff-owned companies, it’s had to ask them to bid for work against private sector suppliers almost immediately.

“For public sector mutuals, you don’t want to throw them into the lion’s den when they’re embryonic. You want them to grow and thrive and get their management structures sorted out,” Collier says. “For a period of time, they will be protected from competition, and they will be subject to that competition at a later date [than before].”

The Cabinet Office is confident this change will help boost its push for more public sector spin-offs: “One of the biggest barriers we have is new mutuals saying: ‘How can we be ready on day one for the full game?’,” Collier says.

However, Tom Gash, research director at the Institute for Government, disagrees. “One of the main barriers to creating mutuals has been the time and effort required in the process of spinning out,” he says. “I think this might be incrementally helpful, but I don’t think it will fundamentally address the reasons why that agenda has taken a while to get off the ground.”

The third change within these new rules helps boost small businesses. Public sector bodies will have more flexibility to split up large contracts into smaller lots, and to loosen turnover requirements that currently favour larger firms. The European Commission estimates that bidding process costs for SMEs will be reduced by 60% as a result of the latter.

In conjunction with this, a number of further changes to EU rules have allowed for the overall streamlining of procurement processes. For example, there has been a reduction in the amount of information required from firms that are tendering, with some documents now only provided by winning bidders. Minimum tendering timetables have been cut, and there is greater freedom for procurement professionals to speak to suppliers both before and during tendering processes.

Further, officials will be more able to speak to suppliers in advance of formal tendering. “This is what officials have been calling out for for a long time. All procurers ought to talk to suppliers, and they’re restricted from doing that in the current regulations,” Collier says.

Yet opinions differ on the significance of the package of procurement reforms – with many suggesting that the message they send out is more important than the changes themselves.

“It sends quite a positive signal that you can take into account the past performance of providers when judging whether to give them work or not,” the IfG’s Gash says – but most contracting problems have come about because “lots of decisions were made badly.”

He adds: “These measures may be incrementally helpful, but there are much wider problems for government in terms of its commissioning and outsourcing of public services.”

Government will move fast to make the most of the changes, though.

“We really want to do this quickly; we don’t want to wait for months and months,” Collier says. EU members are required to transpose the directives into their own national laws within two years, and the Cabinet Office wants to implement them as soon as possible.

It’s also keen to work with local government, Collier says, to train as many people in the public sector as possible to take advantage of the reforms.

From the government’s perspective, the reforms will trim down its paperwork and cut back on unnecessary burdens. By shaving superfluous requirements, they’ll save civil servants time and money. Best of all, when mistakes are made in the future, it won’t just be the government taking the haircut; the suppliers will also suffer their share of the consequences.

This article first appeared on PublicTechnology.net's sister site, CivilServiceWorld.com

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